Anchor Protocol: DeFi's Leading Saving Product
Various DeFi applications provide financial services like lending & borrowing, trading, prediction markets, yield farming, etc. Still, there are only a few million DeFi users, and the Anchor protocol of Terra Ecosystem wants to change it. Team of Anchor Protocol believes that a saving product is required for the mass adoption of DeFi applications.
Anchor is a saving protocol that offers low-volatile yields on deposits of Terra Stablecoins. The Anchor interest rate is powered by staking rewards from Proof of Stake blockchains, and therefore more stable rates can be expected. Anchor Protocol makes a money market between a lender and a borrower.
Lenders can earn stable yields by depositing their Stablecoins while borrowers can borrow stablecoins on their stakeable assets. According to the protocol-defined borrowing ratio, borrowers can lock their bonded assets (bAssets) as collateral and borrow stablecoins. Currently, Bonded Luna (bluna) and Bonded ETH(bETH) are the only two bonded assets that can be put as collateral for borrowing stablecoins.
The stream of staking rewards comes from borrowers' global pool of collateral. These staking rewards are converted into stablecoin, which are given to the lenders in stable yield.
Tokenomics of Anchor
Anchor Protocol's governance token is the Anchor Token (ANC). Users who have staked ANC tokens can propose new governance polls, which can be voted on by users who have staked ANC tokens.
ANC token is designed to increase its value linearly with Anchor's assets under management, allowing it to capture a piece of the protocol's yield. Anchor provides protocol fees to ANC stakeholders proportionally to their stake, benefiting stakeholders as adoption of Anchor grows. ANC stakeholders are driven to suggest, discuss, and vote for proposals that improve the protocol.
ANC Value Accrual
The buying pressure increases proportionally as ANC tokens grow in lockstep with Anchor's Assets Under Management. Protocol fees are used to buy ANC tokens from Terraswap, which are then paid to ANC stakers as staking rewards.
Protocol Fees
ANC captures protocol fees created by Anchor, with 10% of the value flowing into the yield reserve being used for the value accrual of ANC tokens. bAsset rewards, excess yield, and collateral liquidation costs are used to fund Anchor's protocol fees.
basset rewards
A portion of the rewards from deposited bAsset collaterals is used to buy ANC, with the rest going into the yield reserve. If the yield reserve's inventory reaches a sufficient amount, governance can modify the ratio of bAsset rewards utilised for ANC purchases.
Excess Yield
Deposit rates higher than the target deposit rate are stored in the yield reserve, with a portion of it utilised to purchase ANC. The ANC tokens that have been purchased are subsequently given to ANC stakers.
Collateral Liquidation Fees
When a loan is liquidated, 1% of the liquidated collateral value is sent to the yield reserve, with a portion going into ANC purchases. This cost is not included in the bid premiums.
Governance Fees
ANC token deposits of Anchor governance polls that have failed to attain the needed quorum are then allocated to ANC stakers as staking rewards.
At the start of the Anchor Protocol, 150 million ANC tokens were released.
Fifty million (33.3 percent) tokens were airdropped to LUNA stakers, with staked amounts snapshotted at block 2179600.
One hundred million tokens (66.7 percent) were set aside for the Anchor Community Fund.
Final Token Distribution
A total of 1,000,000,000 ANC tokens will be distributed over four years. No more new ANC tokens will be added to the supply once this quantity has been distributed.
Various methods to earn money with Anchor:
Conclusion
Anchor is the leading DeFi protocol of Terra Ecosystem. Currently, 13 billion dollars worth of assets is deposited in the protocol. Its goal is to become a stable saving solution for DeFi users, providing passive income. Anchor has an easy to use interface, which will be helpful in onboarding millions of users. It will play a vital role in the success of DeFi and Terra Ecosystem.